Unchained - Why ShapeShift's Erik Voorhees Thinks Toxic Bitcoin Maximalism Is Bullshit - Ep.258

Episode Date: July 27, 2021

ShapeShift recently announced an intent to decentralize -- a move that would transition the one-time centralized exchange to a full-on DAO. Erik Voorhees, founder and CEO of ShapeShift, comes onto the show to talk about decentralizing the exchange, along with his thoughts on Bitcoin maximalism and crypto regulation. Show highlights: why ShapeShift is decentralizing the company  how ShapeShift used to work what needs to happen for ShapeShift to decentralize why user experience should not change during the transition how the FOX token works what parts of a company cannot be decentralized yet how ShapeShift’s forthcoming foundation will function how ShapeShift decided upon the allocations for the FOX token airdrop why ShapeShift employee and shareholder FOX tokens are locked up for three years what Erik’s role will be going forward how ShapeShift plans to attract devs why Erik believes FOX is not a security how Erik wants the SEC to handle crypto why he believes THORChain is one of the most critical projects in crypto why he is opposed to Bitcoin maximalism Erik’s thoughts on BitMEX’s and Binance’s regulatory issues what he thinks about stablecoin regulation Why Erik believes ShapeShift and Uniswap are not competitors   Thank you to our sponsors! Crypto.com: https://crypto.onelink.me/J9Lg/unchainedcardearnfeb2  Tezos: https://tezos.com/discover?utm_source=laura-shin&utm_medium=podcast-sponsorship-unconfirmed&utm_campaign=tezos-campaign&utm_content=hero  Conjure: https://conjure.finance    Episode Links Erik Voorhees Twitter: https://twitter.com/ErikVoorhees Previous Unchained appearance: https://unchainedpodcast.com/shapeshifts-erik-voorhees-on-how-crypto-will-separate-money-and-state/ ShapeShift: https://beta.shapeshift.com/  Decentralizing Tweet thread: https://twitter.com/ErikVoorhees/status/1415339998740508674 Blog post: https://erikvoorhees.medium.com/shapeshift-is-decentralizing-639bb4c82fc8 Airdrop info: https://shapeshift.com/shapeshift-decentralize-airdrop FOX token contract: https://etherscan.io/token/0xc770eefad204b5180df6a14ee197d99d808ee52d  CoinDesk write-up: https://www.coindesk.com/shapeshift-to-shut-down-airdrop-fox-tokens-to-decentralize-itself-out-of-existence  FOX token analysis: https://www.coindesk.com/shapeshift-fox-token-rally-yield-play-daos  Other THORChain: https://erikvoorhees.medium.com/an-introduction-to-thorchain-for-bitcoiners Getting booed at Miami BTC Conference: https://twitter.com/finematics/status/1401498099441405953 Paxos stablecoin blog: https://www.paxos.com/a-regulated-stablecoin-means-having-a-regulator/ Circle reveals reserves: https://www.theblockcrypto.com/linked/112001/circle-reveals-majority-of-usdc-reserves-are-in-cash-and-cash-equivalents  CFTC and BitMEX: https://www.cftc.gov/PressRoom/PressReleases/8270-20 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto over six years ago, and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the July 27th, 2021 episode of Unchained. My book, The Cryptopians, Idealism Greed, lies in the making of the first big cryptocurrency craze, is available for pre-order on Amazon. Barnes & Noble or any of your favorite bookstores, go to Bitley slash Cryptopians. That's B-I-T-L-Y-S-C-R-Y-P-T-O-P-I-N-S and pre-order today. TASOS is smart money. That's redefining what it means to hold an exchange value in a digitally connected world. Discover how people are reimagining the world around you on TASOS. Conjure brings any asset you want onto Ethereum by allowing for users to create synthetic assets

which track other markets. With zero interest loans and unlimited assets, it's helping defy to consume tradfi. That's C-O-N-J-U-R-E. Finance. Check it out. The Crypto.com app lets you buy, earn, and spend crypto all in one place. Earn up to 8.5% interest on your Bitcoin and 14% interest on your stable coins. Paid weekly. Download the Crypta.com app and get $25 with the code Laura. The link is in the description. Today's guest is Eric Forhees, founder and CEO of ShapeShift, which Disclosure is a past sponsor of my shows.

Welcome, Eric. Hey, how's it going? Great. Nice to have you. Yeah, very glad to be here. Shapeshift recently announced that it's becoming decentralized, and I believe it's the first crypto company to make that transition. What did Shapeshift used to look like and what will it look like going forward? Yeah, so we are a normal today, centralization. company. We have 66 employees. We have an office. We have VC investors. And we've been around

since 2014, so about seven years. And we have decided that we are going to start dismantling the entire corporate structure and open sourcing all of our code and moving to a decentralized Dow type organizational format instead of a centralized corporate organization. organizational format. So there are certainly a number of decentralized projects within crypto, so we're certainly not the first of that. But I think we are the first established company that has just decided to no longer be an established company and completely decentralized itself to whatever degree we can. And why did you decide to make this transition? A few reasons. You know, one is just that the strategic landscape of cryptocurrency

in my opinion is clearly moving toward decentralized applications and will move away from centralized ones. The reason for this is various frictions that centralized entities have to deal with that decentralized ones don't. There's sort of an ideological reason to do this, which is just that Bitcoin's ethos is one of decentralization, immutability, openness, borderlessness, open source. at a base layer. And to the degree that we can be in alignment with that, I think that is better for our customers, better for the brand, and ultimately better for the entire

cryptocurrency industry. The more companies that are in line with that ethos, the better. And so, Shafshift as one of the oldest companies in the space, and also you as an entrepreneur and one of the longest serving entrepreneurs in this space, both of you have been through a lot when it comes to the different cycles in the industry and also when it comes to regulation, banking, and all these other issues. So what does the transition signify for you?

For me, it signifies a development in cryptocurrency in which it's actually possible to decentralize an organization. You know, this was not something I understood or thought possible even a year ago. And the tools that are built by various decentralized projects have gotten very advanced and they're developing rapidly. Years ago, we had to beg banks for bank accounts. And we were always on the precipice of having one bank account closed and having to open another one. And it was, that's always a stressful thing. And we were beholden to that system.

And we're at the point now where we don't need banks at all, like not at all. If we need stability, we hold stable coins. If we don't need stability, we hold Bitcoin and Ethereum. And that's just a very cool development to see that actually us as an organization can can build ourselves on top of the tools that others in this industry have been building. All right. So let's backtrack a second. So early on or before you started making this transition, if a user went to ShapeShift,

what would happen? And they wanted to make a transaction. Yeah. In our first form, starting in 2014, someone would arrive at our website and they would say, I have some Bitcoin. I want some like coin. We would show them a Bitcoin address. They send their Bitcoin to that address.

We as ShapeShift received that coin. and upon receipt of it, we send them their like coin from our own wallet. So it was a quick and easy way to convert one digital asset into another without custody. And back then, of course, there was no KYC, there was no user accounts. It was just it was like a like a vending machine, really. And people, people loved that. It was it was simple. It was clean.

It did exactly what the user wanted in the way that the user wanted it. So that was our first incarnation. By 2018, we had gotten pretty large. We were over 100 employees, and that was the tail of the 2017 boom. And we had invested a lot of time and money into the regulatory world. And we came to the dismal conclusion that we may be treated as a financial institution. And as such, would have to start imposing all sorts of financial regulatory obligations on our users and on ourselves. This was extremely costly to implement, but more importantly, violated all of the ethical

principles that we held, that our users held. Our users hated it. We hated it. But we felt coerced into that because regulators are going to regulate. And we did not see a way out at that time. So we bit the bullet. We implemented KOC, know your customer, basically a lot of the financial surveillance apparatus that all financial institutions have. And that was a couple years of struggle,

for sure. More recently, in 2020, in the fall, we decided we would start integrating decentralized exchanges, which are immutable protocols that aren't run by any company. They're just open source software that live in the Ethereum cloud or on blockchains themselves. And we would rip out our entire trading system, which had been our lifeblood from the beginning, and instead let our users trade directly with these decentralized protocols. And so we got out of the business of regulated activity. By getting out of the business of regulated activity, the regulations do not apply to us because we're not providing that service any longer. And that was the start of our move into an entirely decentralized model, which we just announced recently. So now that you've already

made a few of these steps, what are some of the other things that need to happen over the next few months, I guess, to start the process? So much stuff. Yeah. So, I mean, we are certainly not decentralized today. We are starting a process of decentralizing. Part of that is open sourcing our code. And we have like, you know, seven years of software at all levels and layers. So that in of itself is a huge project. We have to unwind the corporate entity. all of our contracts, all of our banking relationships. We have to do this in a way with shareholder approval and board approval and through all the corporate steps that a normal company has to deal with.

And we have to build and cultivate a community of our users now that hold Fox tokens and bring them into the governance process of where Shapeshift goes because we will no longer be governed by essentially a foundation of shareholders. is we will be governed by a foundation of Fox token holders. And that's a different paradigm. And we have to cultivate that community and build it up. And so earlier when you talked about how Shapeshift started and it was kind of like a vending machine, what is the user experience like now?

And then what will it eventually look like? Yeah. A lot of people still think of us as an exchange, but at this point, that's just a complete misnomer. People can use us to exchange, but we are not in exchange. So, Shapeshift is best described today as a multi-chain self-custody crypto platform. So that means we support lots of different chains, you know, like we're not Ethereum only or Bitcoin only or anything like that. We are self-custody. So users always maintain control of their keys.

You can hook up various wallets to the ShapeShift platform, like a Keep Key or Ledger or Treasurer on the hardware side or Portis or our mobile app on the software side. Eventually, we will add Metamask as well and other leadership. ones. So you sort of bring your own wallet to our interface. And in that interface, you can interact with your digital assets. You can send and receive. You can track your portfolio balance. You can do trades from one asset to another. And that's kind of the starting point for building a crypto platform that the whole world can use. And now we open source that. And so once it's a Dow, well, I guess you may not know what the user experience will be like at that point. But if you're a Fox token holder, then how will how will the Shapeshift experience be for you? Yeah. So you certainly don't need to

hold the Fox token in order to use anything about ShapeShift. You don't get any worse pricing or rates. ShapeShift doesn't add any fees to trading. So it's just like if you went directly to uniswap or something like that. But if you hold the Fox tokens, you have pro rata ability to govern the changes that are made to the platform going forward. So today, that's mostly a superficial benefit. Over time, it will become the complete and holistic way that all major decisions get made the entire project. So that's the transition that we're going through.

There are some other utilities of the token. For example, you get rebates on your gas fees if you hold the token and things like that. But primarily it is about moving the ability to govern, the organization from a shareholder base to a open community that is global around the token. And so a lot of projects went from centralized to decentralized via a foundation. And it looks to me like shapeshift will start that way. You're kind of transitioning from shape shift the company to shape shift the foundation,

or correct me if any of that was incorrect. And so how will that part look? Yeah. So our end goal is not to have. a foundation, but we are establishing a foundation that will exist for somewhere between one and five years and its sole purpose is to help facilitate the decentralization. Ideally, it winds itself down sooner rather than later because it's not needed. There are parts of our operations and our projects that we don't know how to decentralize today.

Those parts need to move to the foundation for now, and as in when we can figure out how to to decentralize them, we will. So a lot of projects have a foundation that's kind of meant to be perpetual. Ours is meant to be temporary. Ideally, it becomes fairly redundant. And so to start, you airdraft these Fox tokens to users across a number of different protocols, but obviously to shape shift users historically. How did you decide upon that allocation?

And correct me if these figures are incorrect, but as far as I can tell, 34% was allocated to the ShapeShift Community, 32% to ShapeShift Staff, 24% to the Shapeshift Dow Treasury, 7.5% to the foundation. And I believe you yourself have 5% of all Fox tokens. Yes, it's part of that staff bucket. Yeah, I mean, this was an interesting part of our design over the last few months. It's like, you know, we had 99% of all the tokens, and we've never sold these things. There's a limited supply.

So how do we allocate these tokens in the best way to cultivate a decentralized community and make this successful long term? So one decision was, you know, a lot of these tokens have to get out into the hands of the community. So we took a third of all of them and airdropped it to over 1.1 million recipients. Over 800,000 past shapeshift customers and a bunch of people from different DFI projects like uniswap token holders and store chain users and various others. And the value of that air drop ranged from, you know, one or two hundred dollars up to a few thousand dollars. So it was the largest air drop in history in terms of the number of recipients. And that was a great way to just kind of bring everyone in and say like, here you go. Thank you for working with us in the past or thank you for being part of an inspirational

community that has helped guide us toward this decentralized path. We put about a quarter of the tokens into the Dow itself. So this is a fund that is governed by the community. So what that means is that over half of all the tokens are essentially in the hands of the community, either airdrop directly or in the hands of the Dow Treasury, which the community of token holders can govern. And then of course, we have employees that have been with us for years and investors that have been with us for years. No part of this decentralized process can screw any group. So our shareholders have to be made better off, our employees have to be made better off, and the customers. So the tokens are the way to do that, right? Give tokens out to everyone and everyone has a stake

in the future of the project. Everyone has governance over the project. But unlike equity and unlike shares, these tokens are immediately liquid and people can do whatever they want with them. One caveat is that all insiders, all employees and shareholders, all of their tokens are locked for three years. So they unlock linearly over that three-year period. And, and, And that aligns them with the long-term interests of ShapeShift. And do you have a sense of the employees and shareholders, whether or not they plan to participate in the Dow or whether they're going to move on to other things? Yeah, it'll be a range.

So certainly some of our employees are just going to want a new like W-2 salary job somewhere, and they will move on to other projects, and that's fine. Many of our employees are really excited about this model, and they will either part-time or full-time still contribute to what ShapeShift is. And depending on where the token price sits, some of their grants are worth far more than what they ever received in salary. So that's a very cool thing. And then they have complete freedom to decide their own schedule, their own lifestyle. You know, there's not a nine to five corporate job.

They can work on it an hour a week or 50 hours a week, whatever they want. And, you know, some of our. investors are totally not familiar with crypto generally, right? So they have no idea that what this even is. Others think this is the coolest thing ever and they're, you know, so glad to be part of it. And it's the full gamut. And what do you plan to do?

Yeah. So I will no longer be CEO of ShapeShift probably by the end of this year. And I would like to take a little bit of a break, you know, like detached from some screens. for a while, but ultimately my interest in shape-shift is heightened as it can be a decentralized project. To me, that is far more exciting than a centralized company. So I plan to just be one influential member among many in the community. And I'll throw my ideas out and I'll try to help guide it and I will vote with my tokens and all that. So I will certainly have a lot of influence, but I will no longer control the project as CEO. And I'm okay with that. I love seeing the community

take up pieces of this and we have all sorts of great people that have been employees at Shapeshift that are going to be leading various areas. So I'm looking forward to that and it's going to be a grand experiment. And so at what point do you think this will be open source? And at that point do you think that some of the engineers who've worked on Shapeshift will keep wanting to work on it as an open source project? Yeah, we're going to open source things incrementally. So kind of repo by repo, I think we looked and we have something like 340 different code repos in shape shift. A lot of it isn't used anymore. Some of it is very mission critical.

We have to do security reviews of the things that we open source. So as we can review things and feel comfortable that they are ready to open source, well commented and documented, those things will be released and opened iteratively. At the same time, we expect that the community will start building new repos and new things into ShapeShift and around ShapeShift. So that we can't control or predict where that will all go. But as an open source project, it means that everyone in the crypto community that also has their own project can integrate what they're doing into the ShapeShift platform.

And that's really going to give us a much better product development path where we are not the limiting factor in what gets built into Shapeshift. So looking forward to that. And so essentially, that's what you're talking about there is like people from other projects that are integrating with ShapeShift. Are there any efforts that you're making to attract new developers to work on the open source project? Or do you feel like the Fox tokens will do that naturally? Or how does that part? Certainly the tokens that were granted out to all of our employees are, I would say, a medium,

a medium term incentive for those people to continue working on the project, even though they have no mandate to, because they have a locked up vested interest in the success of this thing. But ShapeShift is not a charity and does not expect people to just work kind of philanthropically on it. So anyone who is interested in working on Shapeshift as an open source project can propose to the Dow or to the foundation, either one, for a grant to do work. Right. So this could be some tiny feature development or fixing a bug. It could be someone who creates an entire team of 20 engineers and says, hey, I want to go work on this area of the platform for the next year. Give me this big grant and we'll do it. And those decisions ultimately come down to the governance of the Fox token holders.

And so we'll see how all that evolves. But yeah, the Dow has a large treasury. It's over $200 million of value at this point. And so it can easily support a great deal of, development over the coming years. And have you guys already set up a governance system? Like, is there a process that you're using for deciding these things? Yeah, actually, we had our first governance vote last night, which was kind of fun.

Yeah, there's a bunch of really cool tools. Snapshot, boardroom are two of the projects that we use. And these things essentially look at token balances and use that to allow people to make decisions and vote on things. And what's very cool is that you can hook these things up to things like the NOSIS safe. So the NOSIS safe can be like a multi-sig contract that holds all the Fox tokens in it. And the outcome of a vote will procedurally cause funds to move to a certain specified address. So you get like a nearly immutable system in which decisions can actually move economic value and you don't need to trust anyone. So we're certainly not at that

point yet, but that's the direction we're going and all those tools are ready to go. So yeah, a lot of it is set up and we now have to just build that muscle of using these tools instead of using our, you know, internal Slack channel and corporate board governance. And so the foundation has an allocation to start, but is the foundation, does it exist yet? And if so, you know, how does it plan to participate in the governance? Yeah. So it doesn't exist yet. It will likely exist within two months. And it has a relatively small amount of tokens. I think 75 million tokens to the foundation, so 7.5% of all of them. So, you know, it will be an influential participant, but it will not be, it will not be able to control the outcome of the,

of the decision making. Its tokens are mostly to put out bounties on work that it as a centralized entity thinks are important. And so how are you going to staff the foundation? Are you going to have a role there? I won't. None of the current executives of ShapeShift will have a role at that foundation. So when we say decentralizing, it's not like a superficial thing where we're just like the same team, but now we're a foundation. We are actually removing the whole power and governance structure that currently exists out of the question over time iteratively. The foundation will be small. It will likely have somewhere between three and five full-time employees. And these will be people that oversee the open source development and help cultivate that community, help guide the project

and the products, but they won't be able to control it. And ultimately, we'll hold on to things like IP or other centralized operational systems that we haven't figured out how to decentralize yet. Oh, and so like you literally don't know how you'll decentralize that, because I was going to ask about that. How does that happen? Yeah. Yeah. I mean, some questions we just don't have answers to. It's right. So like a simple example, the shapeshift.com domain name, right? Like today, that's held by the shapeshift company in a registrar's account held by the company. Company is going away, right? So what happens to that account? What happens to that domain? There are things like that, which there are ways to solve that, right?

There are different, you know, like unstoppable domains and things that are decentralized. We haven't looked into how to use those effectively yet. So that's a project that we will deal with in the future. We believe those things can be decentralized, but, you know, we can't do everything at once. So that domain will be transferred to the foundation and it will hold it for some period of time. Things like that. Interesting. And I noticed, so one of the businesses under the ShapeShift brand is Keep Key, which is your hardware wallet.

And the current plan is for it to become an open source hardware project, which I don't know, is that like a typical thing? Is it common for something that's like a kind of a physical product that is sold to the market to be open source? And if so, how do you imagine that will kind of function as a business? Yeah, so to be clear, we haven't fully decided what to do with Keep Key yet. One of the paths is to turn it into an open source hardware wallet. The firmware is already open source, so no one should ever trust a hardware wallet where the firmware itself was not open source, but the entire platform becoming open source, all software, all code, the entire hardware design, everything.

That is one option that we are seriously considering. That would be very cool because there isn't any such thing in the world today. And, you know, that would be great. Keepkey is absolutely the best way to interact with the shape shift platform. You get all the advantages of cold storage and just the software interaction between those two things is excellent. So even though we support Treasurer and Ledger, the U.S. is definitely best with the key key. So we will figure out the right place for Keepkech to go. Another option would be that a company acquires it from us and runs it in tandem with the foundation or with some kind of partnership there.

TBD, but we don't have to figure that out just yet. Okay. Yeah, because my thinking when I saw that was that I thought it would probably work best as a managed by a centralized company. I mean, not that I'm an expert on these things, but. Yeah, well, these are all the questions we're exploring. I mean, you know, if you open, if we open source, keep key, what it would mean is that anyone would have the schematics and plans to build the device or to manufacture the device.

So anyone could go build more of them because they would know how to do it. And they could sell those. They could even white label them and put them under their own brand if they wanted. But you certainly get a little bit of risk in that because then how do you trust Keepke? Right. You don't know quite which manufacturer you're getting it from and there are some issues there. Those are solvable with cryptographic signatures and various things, but it is a challenge that we have to be careful about. All right.

So we'll see what happens. happens with that. Okay, so in a moment, we're going to talk a little bit more about the Fox token, but first a quick word from the sponsors who make this show possible. TASOS lets you easily exchange smart money throughout our digital world. A self-upgradable blockchain with a proven track record, TASOS seamlessly adopts tomorrow's innovations without network disruptions today. Because of this adaptability, engineers, conservationists, entrepreneurs, collectors, game developers, and artists from around the world are building, creating, and using Tezos every day. Discover how people are reimagining the world around you on Tezos.

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Download the crypto.com app and get $25 when using the code Laura, L-A-U-R-A-U-R-A, The link is in the description. Do you want to trade gold, currencies, or even bananas on Ethereum? Conjure opens access to the global financial market for Ethereum by allowing for permissionless user-created synthetic assets. Contr allows you to create, borrow, and trade synthetic assets which track the value for any conceivable asset, real or abstract, using any price feed you want. Asset creators are able to earn fees on every mint and scale revenue with direct use for

their assets. Synths are minted by providing Ether to collateralize the asset as 0% interest loans. Punch is helping to bring Tradify to defy and turn Ethereum into the real global financial settlement layer. Trade synths for USD, gold, BTC, or make your own. So why not check out C-O-N-J-U-R-E dot finance and see what's possible. Back to my conversation with Eric Borges. So earlier we talked about how you decided upon the allocations for the Fox token. How did you decide how to distribute it and where to? And I believe there's going to be some yield farming schemes as well.

So yeah, how did you figure all that out? Yeah. So for the insiders, for shareholders and employees, their tokens have to be locked for a period of time. We wanted that to happen. So it didn't just get a big pile on day one. Now, how do you do that? How do you distribute over three years when the corporate entity will be gone in six months? That's actually an easy answer today.

There's a thing called Sabler, which is a smart contract, and you pour a bunch of tokens into it. You tell it a destination address, and it's just every Ethereum block unlocks a tiny fraction of those tokens that can be claimed by the address owner. So those contracts are all set up. So all the employees and shareholders can go, like, see how much is available to them that day. and they can let them sit there for the next three years. They could claim it every week if they wished. And that will happen now no matter what. There's no way to turn that off at this point.

So in ShapeShift, the entity goes away. Those contracts continue spitting out those tokens to those people over the next three years. To the community, we didn't want any lockup provisions. So we just did an air drop. There are a lot ofirdrop contracts out there. The cool thing about open source software is you can just copy it and use it. So we used well-formed AirDrop contracts that had been security audit and vetted, and we just changed some parameters and use those. And over a million addresses are eligible to receive those tokens.

At the end of 90 days, anything that is unclaimed from the AirDrop will get dumped into the Dow Treasury. And that will probably be a large portion of those tokens. So I would guess that the Dow Treasury will end up with around half of all the tokens in existence. and there's no inflation in the Fox token. So that really imbues it with like, kind of like an endowment of assets that, you know, especially if they appreciate, can become a never-ending pool of capital. So at the moment, roughly, what is that, just maybe a little over half of them have been claimed? Is that what you're saying?

No, I'm saying that I would expect by the end of the 90 days, there will probably be a couple hundred million that aren't claimed. Okay. Those will go into the Dow treasury. Yeah. Okay. We'll see the curve of people claiming it has been pretty steady and we'll see kind of how it goes as we get to the end of the 90 days.

But it's just so many addresses, you know, like 1.1 million different addresses over the past six, seven years. So a lot of people have addresses that they don't realize are eligible. And so we need to like keep getting that word out and trying to help people find it. And what was your thinking about, you know, how you chose the different populations? Like, I mean, obviously, shape-shift users seems like an, you know, an obvious choice, but what about for some of the other, you know, users? We largely just did it on feels. Like, what are those DFI projects out there which have been inspirational to us?

So as we learned about decentralized technology, and it went from kind of theoretical doubt communities, which sounded cool on paper, but, you know, that'll never work in the real world, too. Oh, wow. Not only can it work, but a lot of people are doing this. this and some of the biggest D5 protocols in the world are built on them. A lot of pioneers were in these projects and we wanted to just appreciate them. So, you know, Thorchain, Uniswap, Balancer, Gitcoin, probably about 12 different D-5 protocols and projects, Badger Dow. So these are all inspirational projects to us and we decided to include them in the

AirDrop because that's kind of part of the ethos of Defi, right? Is these like composable, interactive communities that all help each other build a decentralized financial system. Yeah. And in a way, it's like those are successful decentralized communities. And so you're kind of just making sure that these tokens go to people who have a higher chance of actually using them rather than leaving them. Yeah.

Yeah. And I won't pretend part of it isn't marketing. I want thousands of users of those communities to see ShapeShift and to get interested in Shapeshift and to learn about what we're doing. And those projects are some of the more successful ones. So there's obviously brilliant creative people involved in that. And if we can get exposure of those people to what we're doing, hopefully some of them will help integrate those projects into Shapeshift. And hopefully many of them will become users of Shapeshift if they weren't already. So there are some murmurs that Uni, the token of Uniswifold,

could potentially be a security. And it also was a token airdropped by a centralized company. Do you have similar concerns for the Fox token? No. Fox token is definitely not a security. And I think the entire world is waiting for the SEC to tell everyone what's the security and what's not. Right? No one knows. No one knows. The lawyers don't know. The SEC doesn't know. If you ask anyone at the SEC, take the top 100 coins on coin market cap and tell me which of those are a security in which are not. They can't do it. they can't do it and that's the SEC. So they always talk about regulatory clarity.

There is none. Nobody knows where the line is getting drawn. Nobody knows which tokens are securities. All you can do is kind of try to read the T-Leaves and try to be as far from a security as possible. So that's what we've done. We've never sold the Fox token. There's no promise of return with the Fox token. It does not satisfy the how we test.

So we're not worried about the Fox token. But I know a lot of projects that are trying to build protocols and tokens, and they have to spend hundreds of thousands of dollars on lawyers that can only give them gray answers. And that's a problem. So did you consult with the SEC about the Fox token before air dropping it? Well, you can't consult with the SEC. Let's put it that way. You can consult with lawyers. And if you ask the SEC, the best that they can do,

has put you through a sort of an administrative ruling process. That process will take many months, and most projects that apply for that never get an answer. So no administrative ruling is given. The SEC has only given a couple of these rulings, and they were on projects that were so clearly on one side or another that it was not helpful. So there is essentially a bell curve of these tokens,

where some are very obviously securities, some are very obviously not, right? Bitcoin being like the best example of the not. And then all these things in the middle. And all those things in the middle, the SEC will not give definitive answers on, even if you go through an administrative ruling process. And no lawyer in the world will tell you which list,

which tokens fall on. And if you got a list from two different law firms, you can sure as hell bet that they would be different. They would include different ones in each bucket. So yeah, it's a total mess. Thank goodness, people are continuing to innovate anyway, and they're not waiting for all these regulators that have no idea about this new technology. It's been sad to see, especially in America, where innovation is supposed to be like the default assumption and where entrepreneurs are able to build new things. And you essentially get this amazing, like new transparency in finance and immutability in finance, the coolest financial technology ever invented.

and the regulators at best are just kind of hemming and hawing and providing zero useful information. So what would you like to see happen? There are a number of proposals out there for how to resolve this, from Hester Persis' Safe Harbor proposal to some different bills in Congress. What's your kind of preferred way for how the SEC handles this? Yeah. I think the SEC can have a very important important role and be a very valuable organization. The degree to which they go after fraud is the scope of that, right? That's what they should focus on. Go find people that are lying, stealing, defrauding people.

Go go find those people. Bring them to justice. Like I would applaud that. But classifying things as securities or not when it's just voluntary exchange between consenting adults, I think adds zero value. Another thing I think the SEC could do that would be very reasonable is to just issue warnings or caution, right? Or like, hey, this token we're worried about for this reason. Or, hey, here's some things to be mindful of if you're going to buy tokens.

Communicate, right? But don't coerce. Don't get in the middle of two adults with a voluntary economic exchange transaction. Like that is antithetical to America. It's antithetical to markets. and I think is only counterproductive and harmful. So, but at the moment, you don't have a preference for any of the proposals for how to create more clarity? I don't really love any of those proposals.

So if I was king of the SEC, I would just go after fraud. I would feel good about that. That should be the proposal. Find the bad actors. It should come down to that, right? Was harm committed? Did someone do something wrong? go after those people and stop worrying about whether something is a security or not,

as long as people are being honest about what they've built and how it works. But I'm definitely in the minority of that viewpoint. So I don't expect the SEC to agree with it. Yeah, well, considering that it's the Securities Exchange Commission and they're all about securities. I don't think they're suddenly going to be like, we're not going to regulate the security. I know. I know. It's a pipe dream. All right. Well, let's talk about something that might be more fun for you. ShapeShift integrated Thor chain, which is a new chain that enables people to swap tokens from different blockchains without using wrapped versions of those tokens. Why did you like Thor chain so much? It was kind of like a little bit of a dark course, I think, when you, I mean, there was like a lot of buzz about it, but you know, it didn't launch until recently. So why did you decide to adopt it so quickly? Yeah, so I learned about it in August of last year, so I guess almost a year ago.

I've been a fan of Uniswap for 18 months. When I saw Uniswap and used it for the first time, I was just like awestruck because it had recaptured some of the magic of the original shape shift. It had made the simple interface, no intermediary, no KYC, protected users by design of the protocol. And it worked great. And it had become massive, right? They became far larger than ShapeShift ever was. And there were days on which it actually was doing more trade volume than Coinbase as a decentralized immutable project. So I was like, that's awesome.

I loved it. But one big asterisk, one big caveat is that it's only Ethereum and ERC 20 assets. And as a bit coiner, as someone who believes in a multi-chain future, that was a big problem. Right? So cool, Uniswap, you made this great thing, but how the hell do I buy Bitcoin with it? That's like the most important asset of all. How do I trade Bitcoin and Tether together? You know, one ERC to one Bitcoin asset. And they couldn't do that. They have wrapped Bitcoin, but any Bitcoiner knows that a wrapped Bitcoin is not a Bitcoin. So I was a little dismayed and I didn't know like, how do we bring that model to multiple chains? And I had no idea how to answer that question. Thor chain answered that question. Thor chain has been, under construction for two and a half years or so. And they took this automated market maker, you know, liquidity pool model of Uniswap, but it works across chains. So you can trade from native unwrapped Bitcoin to native unwrapped ETH. You can trade from like coin to Bitcoin, Bitcoin to Bitcoin cash. Any of the major chains can integrate into Thurchain. That is a huge development

for the industry. And I do not think most people have actually recognized that that exists or or how cool that is, the ability to actually have a decentralized exchange that is chain agnostic is something that has never existed in cryptic before. And it works at scale in large amounts with high liquidity. Caviot again here, Thorchain is very new early software. And they've had a few pretty atrocious bugs recently. Like right now, the chain is offline. So it's not a panacea and it's not ready for prime time.

But it works. It's worked with real money. It's out in the wild. and it's getting better and better each week. So, yeah, I love that project, and we integrated it into Thur chain, or into Sheep Shift. And what has been the uptake? Like, have people kind of recognized kind of what a breakthrough it is and really, you know, been drawn to use it? Or do you find that they're still kind of in their little camps, like the Ether people and then the Bitcoin people?

And so there isn't a lot of interest in these cross-cham swaps. What has been interesting is you can definitely see who the maximalists are on both sides. So like the Bitcoin maximalists aren't into Thorchain because it supports other coins. The Ethereum maximalists aren't into it because it's not like an Ethereum-based decks like Uniswap. But for everyone who actually cares about decentralized finance in a broad sense, the ability to move between different chains, move value between different chains is obviously important. It's a critical piece of infrastructure for this ecosystem. So the growth of Thorchene has been pretty significant, considering that they have self-imposed liquidity caps.

They're keeping the pools small and raising them marginally over time because it's such a new software and it's smart that they're doing that. As those caps get continually raised, liquidity will grow to the point where the pricing becomes extremely competitive. And I would not be surprised if the largest tether Bitcoin market in the world ends up on third chain. Like that's the largest crypto market, tether Bitcoin. 99.99% of tether Bitcoin trading today happens at centralized exchanges. This is completely out of alignment with the ethos of Bitcoin as a decentralized immutable project. So thank goodness there is finally a way to convert Bitcoin to tether without any intermediary. everyone in the ecosystem should be celebrating that and helping to contribute to Thorchane and making it better.

Yeah, that idea is very cool. And especially if a lot of that trading moves from centralized exchanges, it'll be interesting to see what happens to that landscape. So, oh, keep going. Did you want to say? I'll add that I don't think centralized exchanges go away. Like they have certain advantages that decentralized exchanges don't today. But I'd like to at least go from a situation where 99.99% of Bitcoin tether trading being centralized falls to 60 or 50 or 40%. I think that would be a much healthier market.

And what do you think are the benefits of centralized exchanges? Generally, the latency. So decentralized exchanges usually have latency issues. So they're not good for small trades. You would not want to use Thorchain with a $10 swap of Bitcoin to Ethereum. because the transaction fees would just clobber you. But it will absolutely be the best way to convert $1 million of Bitcoin into Ethereum. And those liquidity pools will get massively deep.

Something people don't realize is that in Thorchain, you can earn yield on all the assets of the liquidity pools. So you'll be able to earn yield on Bitcoin by depositing Bitcoin into the third chain liquidity pool. So all these people that are excited about earning, you know, like 1% with BlockFi with a custodian, right? and only from certain jurisdictions and only under KYC and financial surveillance, they'll be able to earn 5, 10, 20% yield with no intermediary on Thurchain. That's huge. So, yeah, you can tell I'm excited about it. I think it's a big deal.

Yeah, I mean, you're not the only one. A lot of people have been telling me, and I, because I've been so focused on the book, I have not done a deep dive into it yet, but I definitely will. So a few times in this conversation, a reference to maximalism, has come up and obviously you made waves at Bitcoin Miami where you, you know, kind of poke the bears a little bit at the conference. What spurred you to make those remarks against maximalism? Yeah.

So I've been outspoken against maximalism for years. And this is, of course, made me very hated by the maximalists at that conference. So this was a Bitcoin focused conference. And I get that. I respect that. I can appreciate a conference that tries to get all the noise of other tokens and other projects out of there and just talk about Bitcoin. I'm all for that. Right before I went up as a moderator of a panel, the panel before me, their topic was something like why toxic maximalism is good

for Bitcoin. So not just maximism, not just like Bitcoin is the only one we should focus on, but like toxic maximalism. Like how big of assholes can we be to people who don't think like us about Bitcoin? And so these people were on stage talking about the virtues of toxic maximalism. I don't know who these people were. I don't know when they got into Bitcoin. But absolutely that is not the community that I come from in Bitcoin. The community I come from in Bitcoin is one of openness and one of decentralization,

of innovation, of caring passionately. about monetary economics and believing that Bitcoin is a better money system for the world, and that if there is an enemy, it is central banks and banking and fiat currency, not the Dogecoin community, not the Ethereum community, right? And yet there are these toxic maximalists that they get up there and just trash these people and they've spun themselves up into thinking that, like, trashing these people is a virtue and is helping Bitcoin and is good. I think it's like a frankly I think it's just kind of disgusting and I was embarrassed it was the first

Bitcoin conference I've ever been to where I was embarrassed about many of the people who were there and I want to be careful not to cast the entire audience or the entire group of Bitcoiners there as these kind of maximalists I think they are a small niche but they're very loud they're very obnoxious and the thing that triggered me when I was backstage one of the guys that was up talking about this was he said, if you're opposed to toxic maximalism, you're opposed to Bitcoin and you're opposed to freedom. I believe that was the exact quote. And this to me sounded like such absurd propaganda. And I almost laughed and realized that he wasn't joking. He actually believed that. If you're not a jerk to other communities, you're against freedom. So when I got up on stage,

I addressed that comment and I just said, you know, that was that was bullshit. And that was it. That was my only comment. A bunch of people in the audience start booing at me. A bunch of people in the audience start cheering. And it became, it went a little bit viral on crypto Twitter for a bit. I don't want to be the center of maximism. I just want people to realize that the best attributes of Bitcoin are openness and decentralization.

And those attributes are best served by a thriving and diverse ecosystem of different digital assets. So it's fascinating. You've been in the ecosystem for so long, and you've been to a gazillion crypto conferences or Bitcoin conferences. Why do you think this was the first one where you felt that strain of toxic maximalism that was kind of being so, you know, pushed really hard? Well, probably we see this.

We see this from online communities generally. where due to various social media algorithms and due to self-selection of messaging, people end up in bubbles of others who think like them. We see this in politics. We see this on Twitter for sure. And I think that there is a bubble of Bitcoin maximalists, toxic maximalists, whatever they want to call themselves, who have just continued to reinforce their own messaging. And, you know, if you're trying to get into Bitcoin,

and you can say something that gets you, you know, 300 likes because you slandered someone in another community, you're going to feel good about that, right? And the people that like that kind of messaging are going to be attracted to you. I think we've gotten to a point where that phenomenon has just gotten very powerful. And the degree to which these people truly, I think they sincerely believe that what they're doing is right. I think they sincerely believe that it's good, that they are jerks to other people and that that is somehow helpful for Bitcoin. It's just turned into a subculture within the Bitcoin community. And I've seen the same exact attributes starting to develop in the Ethereum community.

There are Ethereum Maximilus and indeed some who I would consider pretty toxic. It's a smaller portion, but I worry that it's just a matter of time until any of these communities, you know, you build up this like this niche minority who is more about the hatred of the other than they are about the virtuous attributes of the chain and asset that they fell in love with. So what do you think can be done to kind of turn down those strains and foster one that's, I don't know. I don't have any answers. I will keep talking about it, you know, but like I don't know how to solve that.

But I think it's the biggest problem within crypto. It's the biggest thing that prevents further progress. You know, these communities should be collaborating with each other. point is best when Ethereum exists and vice versa. It is no coincidence that the two things have grown up and hit their all-time highs together. They are mutually beneficial. They have different attributes. And I wish that the communities would see each other as allies in the actual fight, which is decentralized open finance versus centralized closed fiat banking establishment. That's the real struggle here. And maybe some of the maximalists are too scared of that struggle.

maybe some of the maximists are too afraid to actually push the boundary against the government or against a regulator. They're too timid to actually fight. So they just take cheap shots at each other within the crypto community. And out of curiosity, after you made those comments at Bitcoin, Miami, did you hear more from maximalists who were mad at you? Or did you hear more from people who agreed with you and just said, you know, I agree with you, but I don't want to make noise about it because I don't want the maximalist to attack me?

There was some of both. And when I left the stage after my panel, there were a few people that like just yelled out and heckled me like, you know, shit coiner, you know, like just. And I'd never experienced that in person, right? That happens on Twitter all the time. But there are these people who I know haven't been in Bitcoin for more than a couple years, right? Where were they 10 years ago? What were they doing? You know, they obviously didn't understand this technology early enough. Now I think they're trying to make up for it by just being. And so, yeah, it was a, it was uncomfortable. And for the rest of the day, my friends and I were

sitting around, you know, just kind of talking about this development and how Bitcoin conferences did not used to be like that and kind of wishing that that old, that old type of conference would come back. This is, I find this whole thing fascinating, especially since you say it's very new. I wonder what that means. All right. A couple last questions about regulation, which, You know, we've talked very generally about, but the regulators are making a lot of moves. I guess we'll start with one of the cases that's kind of a bit older. Obviously, the CFTC and DOJ went after not only BitMex, but the executives. You know, there were people who felt that this was overreach, and I wondered what your opinion was of that case.

Yeah, I mean, anyone who knows me probably knows my opinion. in there. Where was the wrongdoing? Where was the harm? What did Bitmex lie about? Did they defraud someone? Did they steal someone's money? Did they actually harm anyone? Or did they just offer a service that other people voluntarily used? Because it sounds like it's the latter. It sounds like the DOJ and the CFTC are upset that Bitmex didn't have the right licenses, right? Or was actually allowing Americans to use that service, that kind of thing. These are non-crimes. No one is hurt in that. And you just get a tremendous waste of resource and destruction of productive business when regulators go after others like that. So I'm not an expert on the case. Maybe there are things I do not know. But from my distant view of it,

it seems like the actual crime is the regulators going after private property and destroying commercial business that they had no business destroying. And what do you think about Binance, which right now kind of is at the receiving end of a lot of different regulatory actions across jurisdictions around the world? You know, it's kind of historically known for maybe leaving certain jurisdictions to avoid regulators. What's your take on what's happening there? Yeah. So again, I don't have any inside knowledge there. Finance is obviously the biggest exchange.

I think the biggest cryptocurrency company in the world. They've done a tremendous job of building a business, right? Like I respect CZ's ability to execute and to build something so big. They are building so fast in so many directions. It is not surprising to me that they've got the attention of a lot of regulators. And again, you know, if they're doing something actually wrong, if they're actually harming someone, let the regulators allege the harm. Let's hear that and take them to court for harm.

I don't want to hear a bunch of like, you don't have the license to operate in our jurisdiction, right? But that's maybe appropriate for like Soviet Russia, but it should not be appropriate for any like Western market economy. And so with stable coins, there's also been a lot of noise being made here in the U.S. recently where the SEC chairman, Gary Gensler, was saying that some stable coins might be securities. And the presidential working group on crypto already started, you know, looking closely at, you know, looking closely. at stable coins. What's your take on how stable coins should be regulated here in the U.S.? Well, first of all, they already are regulated, right? Like everything that is involved in finance is regulated. Anyone who's issuing stable coins and backing it with fiat is already under a tremendous amount of financial regulation. So we need to remove this idea that stable coins

are like aren't regulated. Same with crypto. People say crypto's not regulated. It absolutely is. There are so many regulations that apply to this stuff. It's absurd. What should be the regulatory situation with stable coins? Again, none unless people are committing fraud. People have built a new financial asset and other people are finding it valuable. That should be the end of the story, right? That should be it.

So I think what will happen is that governments will apply further regulations because that's generally what they do. They always ratchet regulations on top of more. They never deregulate, contrary to popular opinion. And as that happens, the UX, the user experience of using those stable coins will get worse. You'll have to jump through more hoops to use them. There will be higher capital requirements, which will mean that fees have to get added at various places. For a user, it'll end up at worse experience.

And you'll find that they will start moving to the decentralized alternatives. The greatest beneficiary of stablecoin regulations will be D-A-I, the decentralized stablecoin on Ethereum. And there are a dozen other projects that are decentralized stablecoins like Dye that are waiting in the wings to take this market. The more the governments and regulators clamp down on voluntary economic exchange, now that there is an ability for people to move to decentralized open-source technology with no intermediary, the more they will have. have a reason to do so. So, you know, I'm very glad that that alternative exists. And I think those alternatives get increasingly used to the degree that the UX of the centralized stable coins gets worse. Yeah. I agree with you that the more we're going to see this type of regulation, I feel the more people will move into defy. All right. So actually, one more comment on this.

The stable coin thing is getting wrapped up in this whole CBDC discussion, right? And I think everyone realizes that like the United States and China are going to be in this battle for like the digital currency of the future. Both those countries believe it'll be a digital fiat currency. Obviously, Bitcoiners have a different view on that. But the best thing the U.S. could do from a global political like strategy perspective would be to allow these U.S.-based stable coins that are already massive to continue to flourish. That is the best chance that the U.S. maintains dominance from a digital fiat perspective. And if they just like kill that in the in the cradle, it would be so foolish, but they may well do it. Yeah.

Well, actually, I don't know if you are aware. The former CFTC chairman, Chris John Carlo, I believe is in favor of, you know, these kind of private stable. Wait, or is it Brian Brooks. I'm just blinking for a second. I guess both of them. Yeah, they're in favor of, yeah, a number of private stable coins. And one other thing I wanted to ask you about was, you know, right now the stable coins are being all transparent and, you know, revealing what's backing their staple coins. And obviously, so at the moment, Tether kind of has the least amount of direct cash reserves. And then Circle has a little bit more at like 60 some percent. And then Paxos came out and said, we have 96%. So I was just curious if you have any opinion on the structure of these stable coins. I love that example because it is a demonstration of how markets regulate themselves.

None of those three companies are doing that because they were told to do it by a government regulator. They're doing it because they're all in competition with each other and the market demands transparency. If you have a stable coin and you can demonstrate that you are more sound, you have a huge advantage over others. So you get a far healthier financial system from that competition without a single regulation being written. My guess is that when the regulations get written, the further regulations on top of the, these things, you're going to end up with worse products that act in an antithetical way toward what the market wants. And I wish that the government would just allow this incredible innovation to flourish because that is where all human ingenuity and wealth comes from is this market

competition. It is what made America great. And it's what made crypto great. It's why crypto has thrived and grown and innovated in so many different directions. It's because right now it is somewhat free. And I hope it can continue to maintain that. And at least at the protocol level, it always will be. Yeah, I think the one clarification I would make is that, at least in the case of Tether, I believe the new transparency is because of the settlement with the New York Attorney General. So their hand was a little bit forced there. I would guess if USDA is doing it, they would have to do it to be competitive. But I hear your point. All right. So I know you're not the decider for ShapeShift going forward, but I did want to ask,

how do you think ShapeShift could or should compete with Uniswap because it's so dominant in the deck space? Yeah, we are not trying to compete with Uniswap. We are not a dex. We have actually integrated Uniswap into ShapeShift, along with a dozen other decks. So when someone's doing a trade on Shapeshift, it is being routed to any of those dozen dexes that have the best price at that moment. So we are a huge fans of Uniswap, we hope they get massive. Their liquidity pools being bigger is better for us. Their strength is our strength. So ShapeShift going forward will be more like a Dex aggregator. Technically, we're not even an aggregator because we hook up aggregators into ShapeShift, but that's a little bit better a way to think about it. Yeah, the more, we integrate decentralized

protocols into ShapeShift. So we don't have to compete on any vertical with any of those. All right. Well, we will see how this whole process unfold. It's been super interesting discussing with you. And yeah, I really appreciate that you came on Unchained. Yeah, happy to be here. Thanks, Laura. Good conversation. Oh, actually.

And last question. Where can people learn more about you and ShapeShift? Yeah, Shapeshift.com. Everyone should check to see if they're eligible for the AirDrop because a lot of your listeners will be. I'm at Eric Voorhees on Twitter. Those are probably the best two places. Perfect. All right.

Well, thanks so much for coming on Unchained. Cheers. Thanks so much for joining us today to learn more about Eric. and ShapeShift, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Yun, Daniel Ness, and Mark Murdoch. Thanks for listening.